Contagion

There has been plenty happening in the news since I last posted. Silvio Berlusconi has stepped down as Prime Minister of Italy and has been replaced by economics minister Mario Monti. This follows Greece’s change a couple of weeks ago.

More recently, there have been fears over the debt situation in Spain which has itself just held a general election which has been won by the centre-right Popular Party and its new leader Mariano Rajoy. Fears of the debt contagion spreading to Spain have been justified, but it is hoped that the new administration will be able to assert some control, with the new Prime Minister calling for Spaniards to “brace for difficult times as the nation fights to avoid being overwhelmed by the debt crisis.” In electing the new administration with such a large majority, the people of Spain have clearly signalled a backing for further austerity measures.

In the US, talk in Washington aimed at cutting the level of US government debt are on the verge of failure. A special congressional committee had been charged with finding $1.2 trillion in savings by Wednesday. US debt has just risen above $15 trillion. On Friday, the committee’s Republican co-chairman Jeb Hensarling told reporters that members would meet over the weekend if necessary to “try and find sufficient common ground”.

Disagreements have centred on whether tax increases should form part of the budget reduction measures, with Democrats in favour of such rises but Republicans opposed.

Republicans had also demanded cuts in entitlement programmes, such as social security, medicare and medicaid – something that Democrats had shown willingness to permit, but only in return for tax rises on the rich that were not forthcoming from the other side.

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